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New regulator plans lasting changes to the structure of the UK payments industry

The UK’s new Payment Systems Regulator looks set to shake up the way the industry is structured, with reviews of the ownership of the infrastructure and of the way that indirect access is managed through sponsoring banks.

The PSR takes over regulating the £75 trillion industry today with promises to change the way that payments operate in the UK.

“Our approach will bring change to the industry, injecting competition and innovation where it is needed most, and will put the interests of the people and businesses that use payment systems front and centre,” said Hannah Nixon, managing director of the PSR. “True, long lasting change will be difficult, but we have the powers and the people to make it happen. Our challenge now – the challenge we share with industry – is to work together to deliver it.”

A “new and inclusive strategy setting process that really involves users of these systems for the first time”. This will be done by setting up a Payments Strategy Forum to develop a long-term vision for how payment systems should develop and identify priority areas for the industry to work together where appropriate to deliver this vision;

Increasing transparency around how decisions are made, and who is making them: “We will shine a light on the control and governance of payment systems, challenge payment system operators to explain how they have listened to people and organisations that use payment systems, and check that operators are really taking payment systems in a direction that meets people’s needs.”

Improving the way people and businesses gain access to a payment system – whether directly or indirectly – to be clearer and fairer and in a way that fosters innovative and competitive solutions for customers using payment systems.

As well as confirming its final policy, the PSR published draft terms of reference for two market reviews and announced a card payment systems programme of work.

The first market review will look at the ownership and competitiveness of infrastructure provision, and intends to focus on the infrastructure provided by VocaLink to Bacs, Faster Payments Service, and LINK. “We will explore whether the status quo hampers innovation, is susceptible to conflicts of interest, or acts as a barrier to entry for new providers attempting to break into the market,” it said.

The second review will look at the way many organisations gain access to a payment system indirectly, using a ‘sponsor bank’ that has direct access. Currently the four primary sponsor banks are Barclays, HSBC, Lloyds and RBS, yet there are other payment service providers with direct access who do not operate as sponsors. “Our market review into the supply of indirect access to payment systems will explore the structure of the market, what may be limiting others with direct access from becoming a sponsor bank, and consider what a more competitive indirect access model might look like.

“Payment systems underpin almost every financial transaction we make. I want to see a culture where the industry recognises the importance of delivering good outcomes for the people and organisations it services,” said Nixon. “Parliament has given us very strong powers. From our extensive engagement over the last 12 months I am confident that the industry understands what we are trying to achieve. But if firms do not step up to the mark we will use those powers to issue directions, impose fines and impose obligations that will force individual players to act differently.”

Over the coming year the PSR will also look at card payment systems, and the possibility that they “may need a distinct regulatory approach” because they operate differently to the interbank payment systems and.

Other activities will include monitoring developments in Europe interchange fees regulation to determine if any changes will be required in the UK; examine in more detail concerns about ATM interchange fees to identify whether we need to consider any regulatory action; and watching the implementation of the cheque imaging project to ensure that it aligns with the PSR’s objectives.

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